Qualifying For Mortgage With High Debt To Income Ratios

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Qualifying For Mortgage With High Debt To Income Ratios

This ARTICLE On Qualifying For Mortgage With High Debt To Income Ratios Was PUBLISHED On October 14th, 2019

Qualifying For Mortgage With High Debt To Income Ratios
Gustan Cho Associates Mortgage News

Qualifying For Mortgage With High Debt To Income Ratios:

Qualifying for mortgage with high debt to income ratios is one of the most issues facing mortgage borrowers. Income is one of the important factors when it comes to qualifying for a residential mortgage loan.

There are two types of debt to income ratios:

  • Front end debt to income ratio
  • Back end debt to income ratio

In this article, we will cover and discuss Qualifying For Mortgage With High Debt To Income Ratios.

Front End Debt To Income Ratios

What are Front End Debt To Income Ratios

The front end debt to income ratio is also referred to as the housing ratios and consists of the following:

  • principal
  • interest
  • taxes
  • interest
  • homeowners association dues if applicable
  • flood insurance if applicable
  • dividing the above by monthly gross income yields the front end (housing ratio) DTI

Back End Debt To Income Ratios

What are Back End Debt To Income Ratios

Back end debt to income ratios are the sum of monthly housing payment plus all other minimum monthly payments such as the following:

  • auto loan payments
  • minimum credit card payments
  • student loan payments
  • child support payments
  • installment loan payments
  • other minimum monthly payments

Dividing it by monthly gross income yields the back end debt to income ratios.

Case Scenario On DTI

What is Case Scenario On DTI

For example, case scenario:

  • if proposed housing payment is $1,000 per month
  • monthly gross income is $5,000 per month
  • front end debt to income ratio, or housing ratio, is $1,000 monthly housing payment divided by monthly $5,000 gross income or 20% DTI
  • Debt to income ratios are also referred to as DTI

On the above scenario, here is case scenario:

  • if monthly minimum payments on all other debt total another $1,500
  • then back end debt to income ratio is calculated by taking $1,000 housing payment and adding the sum of total other minimum debts of $1,500, or $2,500

Dividing the $2,500 by the monthly gross income of $5,000 which yields 50% DTI.

Debt To Income Ratio Requirements And Guidelines

What are Debt To Income Ratio Requirements And Guidelines

There is the debt to income ratio requirements for each individual mortgage loan programs.

  • For example, in order to get an approve/eligible per DU FINDINGS or LP FINDINGS on a conventional loan, the maximum debt to income ratio requirements cannot be greater than 50% DTI
  • There is no front end debt to income requirements on conventional loans
  • To qualify for an FHA Loan with credit scores of under 620 credit scores, the maximum front end debt to income ratios allowed is 43% DTI to get an approve/eligible per Automated Underwriting System Approval

If credit scores are over 620, the debt to income ratio requirements are more generous where up to a 46.9% front end debt to income ratios and a 56.9% DTI is allowed for back end debt to income ratios to get AUS Approval.

Loan Programs

What are Loan Programs

USDA Loans require a front end debt to income ratio of 29% DTI and 41% back end debt to income ratios.

  • VA Loans do not have a front end debt to income ratio caps
  • VA Loans can go up as higher than 60% debt to income ratios depending on what the automated underwriting system approves

Most Jumbo Mortgage lenders, condotel mortgage lenders, non-warrantable condo lenders, and portfolio mortgage lenders will cap the debt to income ratios at 40% DTI.

Overlays By Lenders

What are Overlays By Lenders

Just because borrowers meet HUD’s and Fannie Mae and/or Freddie Mac Guidelines with regards to debt to income ratios, many lenders have mortgage lender overlays with regards to debt to income ratios.  Mortgage lender overlays are additional guidelines that are placed in addition to the minimum lending guidelines set by HUD, FANNIE MAE, FREDDIE MAC, VA, USDA.  For example, to HUD’s guidelines to qualify for a 3.5% down payment home purchase FHA loan, the minimum credit score required is 580.  However, a bank, credit union, or mortgage company may have their own lending guidelines with regards to minimum credit scores. They may not accept any mortgage loan applicant with credit scores of at least a 640.  With FHA loans, the maximum debt to income ratios allowed is 56.9% DTI.  A large percentage of mortgage lenders will have debt to income ratio overlays where they will not accept debt to income ratios higher than 45% to 50%.  Borrowers refused a mortgage loan due to lender overlays on debt to income ratios, contact me at gcho@gustancho.com or visit our website at www.gustancho.com and I will be able to assist you. Or call me at 262-716-8151. Text us for faster response. Or email us at gcho@loancabin. We are available 7 days a week, evenings, weekends, holidays and weekends.

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